Home ownership has long been considered the American dream, but recently home prices have been getting more out of reach for many Americans and there is no end in sight. For many years, FHA has been one way that many would use to enable them to buy a home. But even with the help of the FHA, prices were still to hi for many when taking the FHA’s mortgage insurance costs into account.
Relief seems to be on the way. In an effort to make home ownership more affordable, the Federal Housing Administration will dramatically cut the costs associated with the mortgage it backs. It is hoped that the announced move will enable many more to afford a new home.
The FHA enables lower income Americans to afford housing by offering lower rates and relaxed financial requirement conditions. To cover the possibility of default with riskier borrowers, the FHA charges mortgage insurance, which is designed to protect the agency in case a borrower defaults on a loan. The new plan aims to cut these insurance premiums from 1.35% of a loans value to about 0.85% according to a statement from the White House.
So how much of a savings is it? The typical first-time buyer will save $900 a year on their mortgage payments. But it’s not limited to first time buyers, existing homeowners who refinance into an FHA loan will see similar savings.
The White House estimates that the lower premiums will enable up to 250,000 new buyers to purchase a home. With the economy seeming to be on an upsurge, and home values on the rise, and with the job picture improving it seems to be a good time to introduce the new program to further stimulate the already rising economy.
The White House said that even after lowering the premiums, reserves in the fund are projected to grow by $7 billion to $10 billion annually.